Income Tax Amendment for the Assessment Year 2014-15

Highlights of Change in Direct Taxes in the Union Budget 2013

1. Rate of Income Tax for Individual

a) Slab Rate

b) Surcharge and Cess

c) Alternative Minimum Tax (i.e. AMT)

*Marginal Relief:

Total amount payable as Income tax and Surcharge on total income exceeding Rs. 1 Cr. shall not exceed the total amount payable as income on a total income of Rs. 1 Cr. by more than the amount of income that exceeds Rs. 1 Cr.

Author’s Comment: In simple words, we can say, there is no any change in rate of income tax in the individual. Surcharge @ 10% is levied on the rich persons. Due to again introduction of surcharge, Marginal relief is revived in the case of individual. From assessment year 2013-14, Alternative Minimum Tax (AMT) is also applicable on the individual.

d) Rebate of Rs. 2000 for the individual having total income up to 5 lakhs (Section 87A)

An Assessee, being an individual resident in India, his/her total income does not exceed Rs. 5 Lakhs then he/she shall claim rebate equal to the amount of income tax payable on the total income for the any assessment year or an amount of Rs. 2000, whichever is less.

Author’s Comment: It is a rebate which shall be reduced from the Tax Liability. This benefit is restricted to individual who is of the age less than 60 years. Rebate benefit is not available to Super Senior Citizens.    

2. Rate of Income Tax other than Individual

a) Hindu Undivided Family (HUF) or AOP/BOI

(Other than a Cooperative Society) whether incorporated or not, or every Artificial Judicial Person

Surcharge and Cess

Alternative Minimum Tax (i.e. AMT)

*Marginal Relief:

Total amount payable as Income tax and Surcharge on total income exceeding Rs. 1 Cr. shall not exceed the total amount payable as income on a total income of Rs. 1 Cr. by more than the amount of income that exceeds Rs. 1 Cr.

Author’s Comment: In simple words, we can say, there is no any change in rate of income tax in the Hindu Undivided Family (HUF). Surcharge @ 10% is levied on the HUF. Due to again introduction of surcharge, Marginal relief is revived in the case of HUF. From assessment year 2013-14, Alternative Minimum Tax (AMT) is also applicable on the HUF.

b) Cooperative Societies

Surcharge and Cess

Alternative Minimum Tax (i.e. AMT)

*Marginal Relief:

Total amount payable as Income tax and Surcharge on total income exceeding Rs. 1 Cr. shall not exceed the total amount payable as income on a total income of Rs. 1 Cr. by more than the amount of income that exceeds Rs. 1 Cr.

Author’s Comment: Now, Surcharge @ 10% is levied on the Cooperative Societies. Due to introduction of surcharge, Marginal relief is applicable here. From assessment year 2013-14, Alternative Minimum Tax (AMT) is also applicable on the Cooperative Societies.

c) Rates For Firm (including LLP), Indian Company & Foreign Company

*Marginal Relief:

Total amount payable as Income tax and Surcharge on total income exceeding Rs. 1 Cr. but not exceeding Rs. 10 Cr. shall not exceed the total amount payable as income on a total income of Rs. 1 Cr. by more than the amount of income that exceeds Rs. 1 Cr. The total amount payable as income tax and surcharge on total income exceeding Rs. 10 Cr. shall not exceed the total amount payable as income and surcharge on total income of Rs. 10 Cr., by more than the amount of income that exceeds Rs. 10 Cr.

Author’s Comment: Now, there is new Surcharge Slabs are inserted in the case of foreign company and domestic company. If total income exceeding Rs. 1 Cr. but less than Rs. 10 Crs. then in such case Indian company shall pay surcharge @ 5% or Firm (including LLP) shall pay surcharge @ 10%. It is totally injustice in the case of Firm (including LLP).  Due to introduction of surcharge, Marginal relief is applicable here. From assessment year 2013-14, Alternative Minimum Tax (AMT) is applicable on the Firm also.

3.  Return of Income filed without payment of Self- assessment tax to be treated as Defective return (w.e.f 1st June, 2013)

Return of Income shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A has been paid on or before the date of furnishing of the return.

Author’s Comment: Revenue has been noticed that a large number of assessees are filing their returns of income without payment of self-assessment tax. Now, Revenue has power to issue Notice under section 144 of Best Judgment Assessment and Levy penalty for non filing return of income under section 271F upto Rs. 5000/-  

4.  Deductions and Exemptions

Deduction in respect of interest loan sanctioned during the year 2013-14 for acquiring residential house property under section 80EE

An assessee, being an Individual, shall claim deduction in respect of interest on loan sanctioned during the year 2013-14 for acquiring residential house property to the extent of Rs 100,000 for the Assessment Year 2014-15 and 2015-16 only. Deduction shall be subject to following conditions:

a) The loan sanctioned by the financial institution during the period from 1st April, 2013 to 31st March, 2014;

b) Amount loan sanctioned does not exceed Rs. 25 Lakhs

c)  Value of the Residential Property does not exceed Rs. 40 Lakhs

d) The assessee does not own any residential house property on the date of sanction of the loan. (i.e. First Residential House)

Author’s Comment: This benefit is available for first home buyers only. It is a deduction which shall be reduced from the Gross Total income and shall not be treated as Loss under the head house property. Total Deduction amount of Assessment Year 2014-15 and 2015-16 shall be Rs. 100,000.  We can say that it is an amount based deduction and total deduction should not be more than Rs. 100,000. 

Deduction under section 80-IA for Power Sector: It is extended in up to 31st March, 2014.

Deduction for Additional Wages in certain cases (Section 80JJA)

This deduction shall be available to an Indian Company deriving profits from manufacture of goods in its factory. The deduction shall be of an amount equal to 30% of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided.

The deduction under this section shall not be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company.

Author’s Comment: Amendment in this deduction is inserted because many companies claimed benefit of deduction in case of employees as well as workmen. Now, deduction is available only in respect of new regular workmen employed in the factory.

5. Change in Provisions of Income from Business and Profession

a) Incentive for acquisition and installation of new Plant or machinery by manufacturing company (Section 32AC)

Eligible Assessee: A company (domestic or foreign) is engaged in the business of manufacture of an article or thing and invests a sum of more than Rs.100 Crs. in new assets (plant or machinery) during the period from 1st April, 2013 to 31st March, 2015, then, the assessee shall be allowed—

(i) for assessment year 2014-15, a deduction of 15% of aggregate amount of actual cost of new assets acquired and installed during the financial year 2013-14, if the cost of such assets exceeds Rs.100 crs.;

(ii) for assessment year 2015-16, a deduction of 15% of aggregate amount of actual cost of new assets, acquired and installed during the period from 1st April, 2013 to 31st March, 2015, as reduced by the deduction allowed, if any, for assessment year 2014-15.

Lock in period of investment: 5 years

The phrase “new asset” has been defined as new plant or machinery but does not include—

(i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; (i.e. Second Hand Machinery)

(ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (Incentive is for Factory Only)

(iii)any office appliances including computers or computer software;

(iv) any vehicle;

(v) ship or aircraft; or

(vi) Any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

In the case of amalgamation or demerger, amalgamated company or resulting company shall continue to claim benefit of this section.

Author’s Comment: This incentive is for the company which shall acquire and install new plant & machinery for manufacturing purpose only. It is in addition to Additional Depreciation and Depreciation. It shall not be reduced from the Value of Plant & Machinery. To get benefit of this incentive, the Company will have to acquire and install plant & machinery more than 100 Crs.  in the Assessment Year 2014-15 & 2015-16.  We can say that it is an investment linked incentive and there is no limit of maximum incentive amount but minimum incentive amount is Rs 15 Crs. (i.e. 15% of Value of Plant & Machinery Rs. 100 Crs.)  

b) Commodities Transaction Tax

A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions entered into in a recognized association.

The provisions with regard to collection and recovery of CTT, furnishing of returns, assessment procedure, power of assessing officer, chargeability of interest, levy of penalty, institution of prosecution, filing of appeal, power to the Central Government, etc. have also been provided.

Deduction of Commodities Transaction Tax (CTT) (Section 36 (xvi))

It is proposed to insert Clause (xvi) in section 36 of the Income-tax Act to provide that an amount equal to the commodities transaction tax paid by the assessee in respect of the taxable commodities transactions entered into in the course of his business during the previous year shall be allowable as deduction, if the income arising from such taxable commodities transactions is included in the income computed under the head “Profits and gains of business or profession”.

Author’s Comment: Commodities Transaction Tax is inserted through the Budget, 2013 and it is applicable on trading of commodities derivatives of in respect of commodities, other than agricultural commodities, traded in recognized associations.

c) Disallowance of certain fee, charge, etc. in the case of State Government Undertakings (Section 40 (a)(iib)) {w.e.f. A. Y. 2014-15}

Any amount paid by way of fee, charge, etc., which is levied exclusively on, or any amount appropriated, directly or indirectly, from a State Government undertaking, by the State Government, shall not be allowed as deduction for the purposes of computation of income of such undertakings under the head “Profits and gains of business or profession”

Author’s Comment: Any sum paid by State Government Undertaking to State Government by way of Licence fee, charge etc shall not be allowed to State Government Undertaking as an Expenses under the income tax Act, 1961.

d) Computation of income under the head “Profits and gains of business or profession” for transfer of immovable property in certain cases (Section 43CA)(w.e.f. 1st April, 2014)

Currently, when a capital asset, being immovable property, is transferred for a consideration which is less than the value adopted, assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, then such value (stamp duty value) is taken as full value of consideration under section 50C of the Income-tax Act. These provisions do not apply to transfer of immovable property, held by the transferor as stock-in-trade.

It is proposed to provide by inserting a new section 43CA that where the consideration for the transfer of an asset (other than capital asset), being land or building or both, is less than the stamp duty value, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration for the purposes of computing income under the head “Profits and gains of business of profession”.

It is also proposed to provide that where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement.

Author Comments: Section 50C is applicable only in case of transfer of immovable properties if it is held as a capital and not applicable in case of stock in trade, now new section 43CA is inserted where transfer of land or building or both whether held as a stock in trade or Capital asset is covered. Stamp Value on the date of agreement is considered if the date of transfer and date of registration are not same.

Taxability of immovable property received for inadequate consideration (section 56(2)(vii)) [w.e.f 1st April, 2014)

The existing provisions of sub clause (b) of clause (vii) of sub-section (2) of section 56 of the Income-tax Act, inter alia, provide that where any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property would be charged to tax in the hands of the individual or HUF as income from other sources.

The existing provision does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration. It is proposed to amend the provisions of clause (vii) of sub-section (2) of section 56 so as to provide that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration, shall be chargeable to tax in the hands of the individual or HUF as income from other sources.

It is proposed to provide that where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement.

Author Comments: Before this amendment of Section 56 (2) (vii), stamp value of such property shall be chargeable to tax as income from other sources. It shall create double taxation in the hand of transferor and transferee. But, now differential amount (stamp value minus consideration) shall be chargeable to tax in the hand of receiver. Stamp Value on the date of agreement is considered if the date of transfer and date of registration are not same.

Amendment in the definition of Capital Asset

It is proposed to amend item (b) of sub-clause (iii) of clause (14) of section 2 so as to provide that the land situated.

In any area within the distance, measured aerially (shortest aerial distance),

(I) not being more than 2 kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 10,000 but not exceeding 100,000; or

(II) not being more than 6 kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 100,000 but not exceeding 10,00,000; or

(III) not being more than 8 kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 10,00,000 shall form part of capital asset.

Author Comments: Now, Revenue increases the range the capital assets for the purpose of taxation of capital gain. If assessee satisfying any one out of three aforesaid conditions for any asset, then that asset is treated as capital assets and assessee shall have to tax thereon.   

Additional Income-tax on distributed income by company for buy-back of unlisted shares (Section 115QA to 115QC) (w.e.f 1st June, 2013)

The consideration paid by the company for purchase of its own unlisted shares which is in excess of the sum received by the company at the time of issue of such shares (distributed income) will be charged to tax and the company would be liable to pay additional income-tax @ 20% of the distributed income paid to the shareholder. The additional income-tax payable by the company shall be the final tax on similar lines as dividend distribution tax. The income arising to the shareholders in respect of such buy back by the company would be exempt under section 10(34A) where the company is liable to pay the additional income-tax on the buy-back of shares.

Author Comment: from this amendment, Revenue curbs the practice of unlisted company to distribute the reserve & surplus of the company through the buyback of shares without payment dividend distribution tax under section 115-O.

Direction for special audit under sub-section (2A) of section 142 

It is proposed to amend the under section 142 (2A) so as to provide that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.

Author Comments: Now, Revenue has increased the area of special audit of assessees through the proposed amendment in aforesaid section.

Tax Deducted at Source

TDS on transfer of certain immovable properties (other than agricultural land):  Every transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land), shall deduct tax, at the rate of 1% of such sum, if the consideration paid or payable for the transfer of such property exceeds or equal to 5,000,000 rupees (under section 194-IA) (w.e.f. 1st June, 2013)

Author Comments: TDS on immovable property issue was also raised by Finance Minister in the Union Budget, 2012. Now, Revenue intends to track middle class assessees who are not filing return of income properly and evade the income tax.  Revenue curbs the evasion of income tax and restriction on injection of black money in the real estate sector and also control real estate property price which is beyond reach of middle class.

Concessional rate of withholding tax on interest in case of certain rupee denominated long-term infrastructure bonds

Where a non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilized for subscription to a long-term infrastructure bond issue of an Indian company, then, for the purpose of this section, the borrowing by the company shall be deemed to be in foreign currency. In this case, interest payment to a non-resident person would be subject to a concessional rate of tax @ 5%.

Author Comments: The proposed amendment is made for attract Non Resident funds in India and it is beneficial for Non Resident to invest in the long-term infrastructure bond issue of an Indian company.

Misc. Amendments

1. Sections 139C and 139D of the Income-tax Act contain provisions for facilitating filing of annexure-less return of income in electronic form by certain class of income-tax assessees. In order to facilitate electronic filing of annexure-less return of net wealth, it is proposed to insert new sections 14A and 14B in the Wealth-tax Act on similar lines. Now, Wealth tax return shall be filed online. (w.e.f 1st June, 2013)

Author Comments: with help of proposed amendment, Revenue wants to track the person whose shall liable to pay wealth tax, but they are not doing so.

2. For the purpose of Application of Seized Assets under section 132B, Existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act. [w.e.f 1st June, 2013]

3. For the purpose of section 179 and 167C of income tax Act, 1961, “Tax Due” includes penalty, interest or any other sum payable under the Act.

4. Submission of a tax residency certificate is a necessary but not a sufficient condition for claiming benefits under the agreements referred to in sections 90 and 90A. (Section 90 & 90A) [w.e.f 1st April, 2013]

5. Penalty under section 271FA for non-filing of Annual Information Return

a) If a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA, fails to furnish such return within the time prescribed under sub-section (2) thereof, the income-tax authority prescribed under sub-section (1) of the said section may direct that such person shall pay, by way of penalty, a sum of Rs. 100 for every day during which the failure continues.

b)It is further proposed to provide that where such person fails to furnish the return within the period specified in the notice under sub-section (5) of section 285BA, he shall pay, by way of penalty, a sum of Rs. 500 for every day during which the failure continues, beginning from the day immediately following the day on which the time specified in such notice for furnishing the return expires.

6. General Anti Avoidance Rule provisions shall apply from the assessment year 2016-17.

7.Tax rate in case of non-resident taxpayer, in respect of income by way of royalty and fees for technical services as provided under section 115A, is proposed to be increased from 10% to 25%. [w.e.f. 1st April, 2014]

8. Gross Dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26% or more) at the rate of 15% if such dividend is included in the total income for the Financial Year 2012-13 i.e. Assessment Year 2013-14. (w.e.f. 1st April, 2014)

9. Where the tax on dividends received from the foreign subsidiary is payable under section 115BBD by the holding domestic company then, any dividend distributed by the holding company in the same year, to the extent of such dividends, shall not be subject to Dividend Distribution Tax under section 115-O of the Income-tax Act. (w.e.f. 1st June, 2013)

10. In order to provide uniform taxation for all types of funds, other than equity oriented fund, it is proposed to increase the rate of tax on distributed income from 12.5% to 25% in all cases where distribution is made to an individual or a HUF.

Further in case of an Infrastructure debt fund (IDF) set up as a Non-Banking Finance Company (NBFC) the interest payment made by the fund to a non-resident investor is taxable at a concessional rate of 5%. However in case of distribution of income by an IDF set up as a Mutual Fund the distribution tax is levied at the rates described above in the case of a Mutual Fund.

In order to bring parity in taxation of income from investment made by a non-resident Investor in an IDF whether set up as a IDF-NBFC or IDF-MF, it is proposed to amend section 115R to provide that tax @ 5% on income distributed shall be payable in respect of income distributed by a Mutual Fund under an IDF scheme to a non-resident Investor. (Section 115R)  (w.e.f. 1st June, 2013)

11.Reduced Securities Transaction tax (STT) (w.e.f 1st June, 2013)

Author Comments: It is good step of Government to promote the trading of Shares & Securities in the recognized stock. Now, Government also provoke to small & middle class person of society to invest in shares and securities of recognized stock exchange.